An extremist, not a fanatic

April 21, 2009

Waste & decentralization

Reform, the rightish think-tank, and the TUC agree upon something - that you cannot achieve big cuts in public spending merely by cutting waste, as Alistair Darling hopes to do.They’re right. It’s especially hard to cut waste if you try to do so by top-down management. I say this for two generic reasons, which are central to understanding any organization.1. Bounded knowledge. Any sentient being who works in the public sector could identify some waste - an inefficient process, a malingering colleague. There is, therefore, vast knowledge of government waste. But this is fragmentary and dispersed. Top-down management doesn’t gather it. And workers have little incentive to offer it - for fear of rocking the boat, being identified as a trouble-maker by their boss, or simply not wishing to grass up a co-worker. The upshot of this is that government doesn’t know what’s waste and what’s not. To them, public spending is like the old joke about advertising spending; half of it is wasted, but we haven’t a clue which half.2. Bureaucratic capture. If government asks departmental managers to identify waste, guess what? They’ll never say that management is wasteful. The people who’ll lose their jobs under “efficiency savings” aren’t the ones who are useless, but the ones who are powerless.There are, therefore, severe limits on how far top-down, command-and-control management can cut “waste.”So what’s the alternative? One is to cut genuine functions: ID cards, Trident, big military or IT projects, corporate welfare. Another might be to apply (maybe Draconian) rough-and-ready rules; how about: “sack anyone whose job title contains the word ‘strategy’”?There is, though, another possibility - to abandon top-down managerialism. One alternative is “systems thinking“. Another, relatedly, would be a systematic decentralization of government functions. In giving power to workers rather than management, we would stand a chance of exploiting their dispersed knowledge of waste, whilst slashing back the costly box-tickers, supervisors and hangers-on that have so expensively disfigured the public sector.As Nick rightly says, this would require a revolution in government. And I confess to not being at all sure how, technically, it could be achieved; it’s the details that matter.What does seem clear, though, is that cutting waste and empowering public sector workers are not substitutes. They go together.

And of course the same applies to the private sector, which is just as inefficient (and as prone to making stupid decisions) as the public. The underlying reason is identical: modern command and control methods of management.

Speaking from experience in British Government, there are three ways of squeeziing out waste/improving efficiency. In order of amounts yielded, they are:

1. Push down the line the idea, opportunity and credit for making each bit of the system work better. The fall out from doing that is excellent, year-after-year improvements (4-5% a year) in the relation between total work done and total resources used.

2. Spotting where substantial sums are being spent to no good purpose usually has to be done near the centre. All you have to do is to ensure that the young turks who will be the future managers know that they get good marks for pointing out cases. A few dozen of them identifying about 20 million each of savings a year is a reasonable expectation for Whitehall.

3. Old fashioned candle-ending questioning the need for that allownce here, that expensive bit of office space there or asking why the gas bill is so high, is unspectacular; but treated as routine it rolls up useful amounts aver the years.

The means of cutting waste which never really works is the sort of crash programme that the Chancellor has signalled he is about to announce. Crash programmes sometimes crash; but more often fade away as Brown initiatives so often have..

Cutting down on waste usually entails a freeze on recruitment - John Redwood is especially keen on this one. There is one small drawback - staff turnover is highest at the working level (the lowest paid) so those who check benefits, make payments and the rest of the essential work of government leave and are not replaced. The upper levels do not leave so the most expensive and probably least essential for the short to medium term stay put. But because the essential work has to be done, in come the agency staff and the supervisors to cover. So costs may paradoxically tend to rise and effectiveness reduces in a recruitment freeze - look at the revenue and tax service where the loss of the working level has reduced both service quality and effectiveness.